Is Rental Property The Right Passive Income For You?

Rental Property

Things To Consider Before Buying Rental Property.

In discussions of types of passive income, you will often hear rental property mentioned as an option that can work for almost anyone.

While it is true that if you educate yourself, anyone is free to enter the rental market as a landlord if they make the necessary investment and maintain it. It is also true, that anyone considering rental property as a source of future passive income should do their homework BEFORE they purchase rental property.

Here is a quick look at several important things to keep in mind when you consider investing in rental property as a passive income stream.rental property

Many novice landlords, for example, underestimate the full cost of owning a rental property, budgeting only for mortgage payments, insurance and taxes. Don’t forget to factor in utilities, garbage collection, plowing the sidewalk in winter, fixing or replacing the water heater, etc.

You can’t also assume your property will be rented every month you own it. When one tenant moves out, there’s no guarantee you’ll find another one right away. That means you could be on the hook for mortgage and other payments with no money coming in.

Your full rate of return will also include any increase in the value of the property. Before the housing collapse, those gains were almost always a sure bet. But before you factor in those potential gains, take a close look at where property values are headed in the neighborhood you’re considering. Some locations are still feeling the hangover of one of the worst housing downturns in decades.

Don’t forget to find a good accountant who can walk you through the potential tax advantages of becoming a landlord. Despite the relentless bickering in Washington about the need for tax reform, it’s a fairly safe bet that owners of residential real estate will still be entitled to a long list of tax breaks. So before you decide whether the numbers add up, make sure your estimated bottom line includes your “after-tax” costs and income.

Lastly, make sure you’re ready for the homeownership challenges (and headaches) that come with managing a house that someone else is living in. That’s why many veteran landlords pay a management company to take care of the details for them.

It may lower your returns. But it could also lower the stress of being a landlord.
– via CNBC

How Does It All Balance Out?

Nothing beats learning from someone else’s experience. Particularly if you are considering rental property but haven’t jumped into that Landlord role yet.

Getting an inside look at what comes after you make the decision and buy rental property could save you money, sweat and oh so many headaches!

Here is an explanation of how one couple view their experience as Landlord investors as well as things to consider before you buy so you go into your new role as Landlord!

I think back to the days when we acquired our rental properties and wonder what we were thinking. Did we really think it would be easy? Were we that naive? Did we have a long-term plan at all?

Luckily, I don’t worry about it too much. I don’t regret buying our properties, and I think it was one of the best decisions we have ever made. While being a landlord can be stressful and expensive, I believe that the future rewards will be worth it. Our two rental properties will be paid off in approximately 14 years…right in time for our two small children to begin college. We could use the rental income to pay for our children’s education. We could use it to pay for their living expenses while they study. If they go to college nearby, we could even provide them with a free place to live while they pursue their schooling. Once our kids finish school, the nearly $2,000 per month in rent will be ours to save or invest. The possibilities are endless.

Owning rental property can be stressful and difficult. It can test your patience and even your faith in humanity. Yet, I think it is definitely worth my time and effort. While it certainly isn’t as passive as we imagined, I believe that our properties were a great investment and have no regrets at all. Is it worth it? I say yes.

3 tips for first-time landlords

1. Use your intuition.

We have been advised by others to never rent to anyone with bad credit. We feel differently and tend to rent to people with bad credit as long as they are up front about it. I’m glad that we listened to ourselves because our best renters have all had terrible credit.

2. Keep your house nice.

Saving money is a good thing, but don’t do it at the cost of your renters! If something breaks, have it repaired quickly and correctly. Between tenants, make sure that your home is clean and in repair. A nice clean home will attract renters who will work hard to keep it that way.

3. Have a large cash cushion.

Owning rental properties means that you have more liabilities. You have more than one air-conditioner, furnace, refrigerator, and roof to worry about. You need to have enough cash to cover the cost of replacing all of these items. If you don’t have a large enough cash cushion, you should probably wait to buy rental property until you do.
– via Get Rich Slowly – Personal Finance That Makes Cents

Do you currently own rental property? Are you planning to use the passive income it provides for any particular purpose?

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